5 Stocks Poised for Breakouts - views

DELAFIELD, Wis. (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players who can ultimately push the stock significantly higher.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels and hold above those breakout prices, then it can easily trend significantly higher.

One technology player that's starting to move within range of triggering a major breakout trade is Gigamon (GIMO), which designs, develops and sells products and services that provide customers with visibility and control of network traffic for enterprises and services providers in the U.S. and the rest of the Americas, Europe, the Middle East, Africa and the Asia Pacific. This stock has been destroyed by the bears over the last six months, with shares off sharply by 47%.

If you take a look at the chart for Gigamon, you'll see that this stock is gapping up sharply higher here with heavy upside volume. Volume so far today has registered 1.58 million shares, which is well above its three-month average action of 627,044 shares. This spike higher on Friday has pushed shares of GIMO into breakout territory, since the stock has taken out some near-term overhead resistance at $16.64 a share. That move is starting to push shares of GIMO within range of triggering another big breakout trade.

Traders should now look for long-biased trades in GIMO if it manages to break out above Friday's intraday high of $18.02 a share to its recent gap-down-day high of $20.01 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 627,044 shares. If that breakout triggers soon, then GIMO will set up to re-fill some of its gap-down-day zone that started at $26 a share.

Traders can look to buy GIMO off weakness to anticipate that breakout and simply use a stop that sits right below some near-term support at $16 a share. One can also buy GIMO off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Hercules Offshore

An energy player that's starting to move within range of triggering a big breakout trade is Hercules Offshore (HERO), which provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry worldwide. This stock has been hit hard by the sellers over the last six months, with shares down sharply by 38%.

If you take a glance at the chart for Hercules Offshore, you'll notice that this stock has trending sideways and consolidating for the last three months, with shares moving between $4.21 on the downside and $4.98 on the upside. Shares of HERO are now starting to bounce higher off that $4.21 low and it's starting to move within range of triggering a big breakout trade above some key near-term overhead resistance levels.

Traders should now look for long-biased trades in HERO if it manages to break out above its 50-day moving average at $4.58 a share and then once it takes out more key overhead resistance levels at $4.70 to $4.98 share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 4.22 million shares. If that breakout materializes soon, then HERO will set up to re-test or possibly take out its next major overhead resistance levels at $5.50 to $6 a share, or even $6.50 a share.

Traders can look to buy HERO off weakness to anticipate that breakout and simply use a stop that sits right below its 52-week low of $4.21 a share. One could also buy HERO off strength once it starts to clear those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Alamos Gold

Another stock that's starting to trend within range of triggering a near-term breakout trade is Alamos Gold (AGI), which is engaged in the acquisition, exploration, development, and extraction of precious metals, primarily gold. This stock has been hit hard by the bears over the last six months, with shares down sharply by 39%.

If you take a glance at the chart for Alamos Gold, you'll notice that this stock has been trending sideways and consolidating for the last month and change, with shares moving between $8.89 on the downside and $9.92 on the upside. Shares of AGI have also been forming a major bottoming pattern over the last three months and change, with the stock finding buying interest each time it's trended down just below $9 a share. Shares of AGI are now starting to bounce higher off those support levels and it's quickly moving within range of triggering a major breakout trade above the upper-end of its recent sideways trading chart pattern.

Traders should now look for long-biased trades in AGI if it manages to break out above some near-term overhead resistance levels at $9.50 to its 50-day moving average at $9.63 a share and then once it takes out $9.92 to $10 a share with high volume. Watch for a sustained move or close above those levels with volume that registers near or above its three-month average action of 391,795 shares. If that breakout kicks off soon, then AGI will set up to re-test or possibly take out its next major overhead resistance levels at $11.11 a share. Any high-volume move above that level with volume will then give AGI a chance to re-fill some of its previous gap-down-day zone from January that started at near $12.50 a share.

Traders can look to buy AGI off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $8.89 to $8.78 a share. One can also buy AGI off strength once it starts to take out those breakout levels share with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Lake Shore Gold

Another basic materials player that's starting to trend within range of triggering a major breakout trade is Lake Shore Gold (LSG), which is engaged in the acquisition, exploration and development of gold properties in Canada. It also explores for silver ores. This stock has been on fire so far in 2014, with shares up sharply by 75%.

If you look at the chart for Lake Shore Gold, you'll notice that this stock has been uptrending strong for the last month and change, with shares moving higher from its low of 60 cents per share to its recent high of 84 cents per share. During that uptrend, shares of LSG have been making mostly higher lows and higher highs, which is bullish technical price action. Shares of LSG recently pulled back off that 84 cents high to around 70 cents per share, and subsequently the stock has now resumed its uptrend. That move is quickly pushing shares of LSG within range of triggering a major breakout trade.

Traders should now look for long-biased trades in LSG if it manages to break out above some near-term overhead resistance levels at 80 to 84 cents per share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 509,824 shares. If that breakout gets underway soon, then LSG will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of 91 cents per share to 94 cents per share. Any high-volume move above those levels will then give LSG a chance to tag $1 to $1.10 a share.

Traders can look to buy LSG off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at 69 cents per share. One can also buy LSG off strength once it starts to take out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Wet Seal

My final breakout trading prospect is retailer Wet Seal (WTSL), which operates stores that sell fashionable and contemporary apparel and accessory items for female consumers. This stock is down big so far in 2014, with shares off by 60%.

If you look at the chart for Wet Seal, you'll notice that this stock has been uptrending over the last few weeks, with shares moving higher from its low of $1.05 to its intraday high of $1.25 a share. During that uptrend, shares of WTSL have been consistently making higher lows and higher highs, which is bullish technical price action. This uptrend is coming after a major downtrend for shares of WTSL that took the stock significantly lower over the last six months from over $3.40 to that $1.05 low. Shares of WTSL are now starting to spike higher and move within range of triggering a big breakout trade.

Traders should now look for long-biased trades in WTSL if it manages to break out above some near-term overhead resistance at $1.25 share with high volume. Look for a sustained move or close above that level with volume that registers near or above its three-month average action of 1.53 million shares. If that breakout triggers soon, then WTSL will set up to re-test or possibly take out its next major overhead resistance level at $1.37 a share. Any high-volume move above that level will then give WTSL a chance to tag its 50-day moving average of $1.53 to possibly even $1.80 a share.

Traders can look to buy WTSL off weakness to anticipate that breakout and simply use a stop that sits right around some near-term support levels at $1.14 a share or at $1.10 a share. One can also buy WTSL off strength once it busts above those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.